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A Nic(h)e Business

Eight years ago, Jed Schlanger got an inspiration: to focus on small business owners whose companies produced tangible goods. I felt I'd get a vicarious thrill from working with people who made something real, he says. So, Schlanger, who heads The Commerce Co., (a financial advisory) in Portland, Ore., decided to concentrate on providing 401(k) services to a highly-defined market small companies in

Eight years ago, Jed Schlanger got an inspiration: to focus on small business owners whose companies produced tangible goods. “I felt I'd get a vicarious thrill from working with people who made something real,” he says. So, Schlanger, who heads The Commerce Co., (a financial advisory) in Portland, Ore., decided to concentrate on providing 401(k) services to a highly-defined market — small companies in manufacturing. Since then, through a mix of cold calling and seminar presentations, he's built up a practice largely servicing accounts from lumber companies, bicycle makers and the like.

Schlanger, who is affiliated with Raymond James Financial, now has about $275 million in assets. About a third of that is the personal accounts he handles for business owners who started out with Schlanger by opening company 401(k) plans.

The lesson is clear: If specialization is good — say retirement or small business — super-specialization is even better. Fact is, reps that do usually make more money than those who remain generalists. (See chart on p. 72.)

It is especially useful for advisors targeting small business to find a niche. In a market flooded with competitors, serving a special sector within small business gives advisors a way to stand out from the crowd. You're not just a commodity. You're a valued advisor to business owners in, say, the pet food industry. And it's a great calling card to show a prospect how you have already helped a business owner just like her.

“As the market becomes more saturated, it's important for advisors to offer something unique,” says Philip Palaveev, senior consultant with Moss Adams, a Bellevue, Wash., accounting firm specializing in financial advisors. “Focusing on a specific industry within the small business area can be a very successful tactic.”


First, of course, you have to pick your poison — that is, choose which industry to focus on. Probably the most efficient tack is to study your client roster to see whether you have a few accounts from the same sector.

When Stephen Powell, an advisor with AXA Advisors in Norfolk, Va., started out 15 years ago, several friends who were physicians signed on as clients. He quickly saw in them a fortuitous opportunity, and started taking them out to lunch to pick their brains. Now, about 80 percent of his clients are physicians. He handles both their personal and business finances, which has meant developing an expertise in everything from malpractice protection to issues related to managed care.

Frank Fantozzi, an advisor with Planned Financial Services in Brecksville, Ohio, started combing his book for potential specialties five years ago. He and his partners, all originally CPAs, realized they had a strong network of business ties with other accountants, as well as attorneys. They figured that they could start a separate division providing 401(k)s to firms in those professions.

Other advisors simply zero in on a business area that looks promising. Keith Newcomb, an advisor with Full Life Financial in Nashville, Tenn., decided to focus on small accounting firms, “because CPAs are competent individuals able to recognize good advice when they see it — and they follow it, also.”

Once you have picked a niche, you need a strategy for systematically learning the idiosyncrasies of the industry or profession. “Not all businesses are alike,” says Palaveev. “If you understand the characteristics of an industry, you're in a much better position to serve that client.”

For example, because professional services firms tend to have fluctuating or seasonal revenue streams, often the big issue for owners is managing cash flow. For manufacturing companies, on the other hand, getting access to capital is usually a pressing concern. And the nature of the business also gives you cues as to how to provide service. Schlanger, for example, discovered that he had to tailor how he provided signup and education for factory employees at his client companies. “No one wants to shut down their lines” to accommodate a 401(k) orientation, he says. As a result, he learned to conduct many sessions for small groups of workers over a period of several days, rather than doing it all in one or two gatherings.

Make no mistake: Developing a knowledge of an industry does require a lot of leg work. Palaveev figures it takes about five years before an advisor will really be considered an expert in a particular business. For Schlanger, the only way to learn about clients' businesses was through their discussions and working together, one conversation at a time. Similarly, Powell learned a lot initially by spending time with his physician friends, finding out what they were concerned about and what products and services they needed.

Attending trade and professional association meetings — perhaps becoming a member of the organization — is also essential. Associations are important for finding clients, too. In the beginning, for example, Powell regularly went to state medical association meetings, where he set up booths as an exhibitor. He put on educational seminars on such topics as life insurance and mutual funds at local medical schools, too. Newcomb, also, cultivated his first CPA clients by teaching financial planning courses for meeting continuing education requirements to accountants at a nearby school.

There also may be industry-specific tactics for solidifying relationships with clients. For John Sestina, an advisor with John E. Sestina & Co. in Columbus, Ohio, who targets physicians, the staff of medical offices tends to be a fount of useful information. The intelligence he gleans from the office manager can help him later in conversations with the doctor. For that reason, he often uses his initial presentation to the staff as a way of picking up helpful gossip.

Recently, for example, during one such presentation, he learned from the staff that, despite a steady flow of patients, the practice didn't seem to be doing well financially. Sestina used that insight in his talks with the doctor, and he eventually discovered that the practice's accountant was not only a sloppy bookkeeper — about $100,000 hadn't been collected because the patients had never been sent bills — but the CPA was also stealing. The doctor is certainly grateful to the advisor for discovering a huge threat to his business.


At other times, as you would with any client, the key is providing constant reminders that you're looking out for their interests. You just need to tailor your moves to their particular business interests. David Fenstermaker, an advisor with Raymond James & Associates in Washington, focuses part of his business on franchise owners in one particular large franchise (he won't say which one), and regularly sends them breaking news of interest about their franchiser. “They're constantly trying to figure out how things are going,” he says. “And they appreciate the fact that you're watching out for them.”

You can learn from your clients as well. To make his clients feel at home, Sestina set up his own practice to mimic the way physicians do business. To be sure he was on the right track, he discussed the system with his clients as he developed it. For example, just as patients often spend the first part of their appointment seeing a nurse or a lab technician before they talk to a doctor, Sestina has his clients deal with several levels of staff — say, someone who gathers key data or makes appointments — before seeing him. That frees up Sestina and the other 10 advisors in his firm to concentrate on providing investing and financial planning services.

Such specialization isn't for everyone. Ultimately, you need to decide just how deeply involved you want to get in the business. The more in-depth your work, the greater client loyalty will be. Sestina, for example, does everything from cash-flow management to helping negotiate building construction and offering advice about strategy. One client, an orthopedic surgeon, who was fed up with the bureaucracy at the hospital where he operated, started talking about setting up a clinic with a group of other doctors. He immediately asked Sestina for his opinion, and the advisor did some research and came back with a thumbs-up reaction.

Over the next two years, he proceeded to get involved in just about every step of the process — evaluating how to deal with the hospital, what type of machines to get, whether to lease or buy a building and arranging for the down payment once they decided to purchase a site.

“This stuff is really complicated and my clients don't have time to focus on it,” says Sestina. “I think most small business owners would like their advisors to do this type of work for them.”

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